Steward MacHine Co. v. Davis, 301 U.S. 548 (1937)

8/17/2019 Steward MacHine Co. v. Davis, 301 U.S. 548 (1937)

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301 U.S. 548

57 S.Ct. 883

81 L.Ed. 1279

CHAS. C. STEWARD MACH. CO.

v.

DAVIS.

No. 837.

Argued April 8-9, 1937.

Decided May 24, 1937.

[Syllabus from pages 548-550 intentionally omitted]

Messrs. William Logan Martin, of Birmingham, Ala., Neil P. Sterne, of

Anniston, Ala., and Walter Bouldin, of Birmingham, Ala., for petitioner.

Homer S. Cummings, Atty. Gen.,

[Argument of Counsel from pages 551-553 intentionally omitted] CharlesE. Wyzanski, Jr., Sp. Asst. Atty. Gen., and Robert H. Jackson, Asst. Atty.

Gen., for respondent.

[Argument of Counsel from pages 553-573 intentionally omitted]

Mr. Justice CARDOZO delivered the opinion of the Court.

1 The validity of the tax imposed by the Social Security Act (42 U.S.C.A. §§ 301

—1305) on employers of eight or more is here to be determined.

2 Petitioner, an Alabama corporation, paid a tax in accordance with the statute,

filed a claim for refund with the Commissioner of Internal Revenue, and sued

to recover the payment ($46.14), asserting a conflict between the statute and

the Constitution of the United States. Upon demurrer the District Court gave

judgment for the defendant dismissing the complaint, and the Circuit Court of Appeals for the Fifth Circuit affirmed. 89 F.(2d) 207. The decision is in accord

with judgments of the Supreme Judicial Court of Massachusetts (Howes

Brothers Co. v. Massachusetts Unemployment Compensation Commission,


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December 30, 1936, 5 N.E.(2d) 720), the Supreme Court of California (Gillum

v. Johnson, November 25, 1936, 62 P.(2d) 1037), and the Supreme Court of

Alabama (Beeland Wholesale Co. v. Kaufman, March 18, 1937, 174 So. 516).

It is in conflict with a judgment of the Circuit Court of Appeals for the First

Circuit, from which one judge dissented. Davis v. Boston & Maine R.R. Co.,

April 14, 1937, 89 F. (2d) 368. An important question of constitutional law

being involved, we granted certiorari. 300 U.S. 652, 57 S.Ct. 673, 81 L.Ed. —-.

3 The Social Security Act (Act of August 14, 1935, c. 531, 49 Stat. 620, 42

U.S.C., c. 7 (Supp.II), 42 U.S.C.A. §§ 301—1305) is divided into eleven

separate titles, of which only titles IX and III are so related to this case as to

stand in need of summary.

4 The caption of title IX is 'Tax on Employers of Eight or More.' Every employer

(with stated exceptions) is to pay for each calendar year 'an excise tax, withrespect to having individuals in his employ,' the tax to be measured by

prescribed percentages of the total wages payable by the employer during the

calendar year with respect to such employment. Section 901, 42 U.S.C.A. §

1101. One is not, however, an 'employer' within the meaning of the act unless

he employs eight persons or more. Section 907(a), 42 U.S.C.A. § 1107(a).

There are also other limitations of minor importance. The term 'employment'

too has its special definition, excluding agricultural labor, domestic service in a

private home, and some other smaller classes. Section 907(c), 42 U.S.C.A. §1107(c). The tax begins with the year 1936, and is payable for the first time on

January 31, 1937. During the calendar year 1936 the rate is to be 1 per cent.,

during 1937 2 per cent., and 3 per cent. thereafter. The proceeds, when

collected, go into the Treasury of the United States like internal revenue

collections generally. Section 905(a), 42 U.S.C.A. § 1105(a). They are not

earmarked in any way. In certain circumstances, however, credits are allowable.

Section 902, 42 U.S.C.A. § 1102. If the taxpayer has made contributions to an

unemployment fund under a state law, he may credit such contributions againstthe federal tax, provided, however, that the total credit allowed to any taxpayer

shall not exceed 90 per centum of the tax against which it is credited, and

provided also that the state law shall have been certified to the Secretary of the

Treasury by the Social Security Board as satisfying certain minimum criteria.

Section 902. The provisions of section 903 (42 U.S.C.A. § 1103) defining those

criteria are stated in the margin.1 Some of the conditions thus attached to the

allowance of a credit are designed to give assurance that the state

unemployment compensation law shall be one in substance as well as name.Others are designed to give assurance that the contributions shall be protected

against loss after payment to the state. To this last end there are provisions that

before a state law shall have the approval of the Board it must direct that the


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contributions to the state fund be paid over immediately to the Secretary of the

Treasury to the credit of the 'Unemployment Trust Fund.' Section 904 (42

U.S.C.A. § 1104) establishing this fund is quoted below.2 For the moment it is

enough to say that the fund is to be held by the Secretary of the Treasury, who

is to invest in government securities any portion not required in his judgment to

meet current withdrawals. He is authorized and directed to pay out of the fund

to any competent state agency such sums as it may duly requisition from theamount standing to its credit. Section 904(f), 42 U.S.C.A. § 1104(f).

5 Title III, which is also challenged as invalid, has the caption 'Grants to States

for Unemployment Compensation Administration.' Under this title, certain

sums of money are 'authorized to be appropriated' for the purpose of assisting

the states in the administration of their unemployment compensation laws, the

maximum for the fiscal year ending June 30, 1936, to be $4,000,000, and

$49,000,000 for each fiscal year thereafter. Section 301, 42 U.S.C.A. § 501. No present appropriation is made to the extent of a single dollar. All that the title

does is to authorize future appropriations. Actually only $2,250,000 of the

$4,000,000 authorized was appropriated for 1936 (Act of Feb. 11, 1936, c. 49,

49 Stat. 1109, 1113) and only $29,000,000 of the $49,000,000 authorized for

the following year (Act of June 22, 1936, c. 689, 49 Stat. 1597, 1605). The

appropriations when made were not specifically out of the proceeds of the

employment tax, but out of any moneys in the Treasury. Other sections of the

title prescribe the method by which the payments are to be made to the state(section 302, 42 U.S.C.A. § 502) and also certain conditions to be established to

the satisfaction of the Social Security Board before certifying the propriety of a

payment to the Secretary of the Treasury (section 303, 42 U.S.C.A. § 503).

They are designed to give assurance to the federal government that the moneys

granted by it will not be expended for purposes alien to the grant, and will be

used in the administration of genuine unemployment compensation laws.

6 The assault on the statute proceeds on an extended front. Its assailants take theground that the tax is not an excise; that it is not uniform throughout the United

States as excises are required to be; that its exceptions are so many and

arbitrary as to violate the Fifth Amendment; that its purpose was not revenue,

but an unlawful invasion of the reserved powers of the states; and that the states

in submitting to it have yielded to coercion and have abandoned governmental

functions which they are not permitted to surrender.

7 The objections will be considered seriatim with such further explanation as may be necessary to make their meaning clear.

8 First: The tax, which is described in the statute as an excise, is laid with


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uniformity throughout the United States as a duty, an impost, or an excise upon

the relation of employment.

9 1. We are told that the relation of employment is one so essential to the pursuit

of happiness that it may not be burdened with a tax. Appeal is made to history.

From the precedents of colonial days, we are supplied with illustrations of

excises common in the colonies. They are said to have been bound up with theenjoyment of particular commodities. Appeal is also made to principle or the

analysis of concepts. An excise, we are told, imports a tax upon a privilege;

employment, it is said, is a right, not a privilege, from which it follows that

employment is not subject to an excise. Neither the one appeal nor the other

leads to the desired goal.

10 As to the argument from history: Doubtless there were many excises in colonial

days and later that were associated, more or less intimately, with the enjoymentor the use of property. This would not prove, even if no others were then

known, that the forms then accepted were not subject to enlargement. Cf.

Pensacola Teleg. Co. v. Western Union Telegraph Co., 96 U.S. 1, 9, 24 L.Ed.

708; In re Debs, 158 U.S. 564, 591, 15 S.Ct. 900, 39 L.Ed. 1092; South

Carolina v. United States, 199 U.S. 437, 448, 449, 26 S.Ct. 110, 50 L.Ed. 261,

4 Ann.Cas. 737. But in truth other excises were known, and known since early

times. Thus in 1695 (6 & 7 Wm. III, c. 6), Parliament passed an act which

granted 'to His Majesty certain Rates and Duties upon Marriages, Births andBurials,' all for the purpose of 'carrying on the War against France with

Vigour.' See Opinion of the Justices, 196 Mass. 603, 609, 85 N.E. 545, 547. No

commodity was affected there. The industry of counsel has supplied us with an

apter illustration where the tax was not different in substance from the one now

challenged as invalid. In 1777, before our Constitutional Convention,

Parliament laid upon employers an annual 'duty' of 21 shillings for 'every male

Servant' employed in stated forms of work.3 Revenue Act of 1777, 17 George

III, c. 39.4 The point is made as a distinction that a tax upon the use of maleservants was thought of as a tax upon a luxury. Davis v. Boston & Maine R.R.

Co., supra. It did not touch employments in husbandry or business. This is to

throw over the argument that historically an excise is a tax upon the enjoyment

of commodities. But the attempted distinction, whatever may be thought of its

validity, is inapplicable to a statute of Virginia passed in 1780. There a tax of 3

pounds, 6 shillings, and 8 pence was to be paid for every male tithable above

the age of twenty-one years (with stated exceptions), and a like tax for 'every

white servant whatsoever, except apprentices under the age of twenty oneyears.' 10 Hening's Statutes of Virginia, p. 244. Our colonial forbears knew

more about ways of taxing than some of their descendants seem to be willing to

concede.5


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11 The historical prop failing, the prop or fancied prop of principle remains. We

learn that employment for lawful gain is a 'natural' or 'inherent' or 'inalienable'

right, and not a 'privilege' at all. But natural rights, so called, are as much

subject to taxation as rights of less importance.6 An excise is not limited to

vocations or activities that may be prohibited altogether. It is not limited to

those that are the outcome of a franchise. It extends to vocations or activities

pursued as of common right. What the individual does in the operation of a business is amenable to taxation just as much as what he owns, at all events if

the classification is not tyrannical or arbitrary. 'Business is as legitimate an

object of the taxing power as property.' City of Newton v. Atchison, 31 Kan.

151, 154, 1 P. 288, 290, 47 Am.Rep. 486 (per Brewer, J.). Indeed, ownership

itself, as we had occasion to point out the other day, is only a bundle of rights

and privileges invested with a single name. Henneford v. Silas Mason Co., Inc.

(March 29, 1937) 300 U.S. 577, 57 S.Ct. 524, 527, 81 L.Ed. 814. 'A state is at

liberty, if it pleases, to tax them all collectively, or to separate the faggots andlay the charge distributively.' Id. Employment is a business relation, if not itself

a business. It is a relation without which business could seldom be carried on

effectively. The power to tax the activities and relations that constitute a calling

considered as a unit is the power to tax any of them. The whole includes the

parts. Nashville, C. & St. L. Ry. Co. v. Wallace, 288 U.S. 249, 267, 268, 53

S.Ct. 345, 349, 350, 77 L.Ed. 730, 87 A.L.R. 1191.

12 The subject-matter of taxation open to the power of the Congress is ascomprehensive as that open to the power of the states, though the method of

apportionment may at times be different. 'The Congress shall have Power to lay

and collect Taxes, Duties, Imposts and Excises.' Article 1, § 8. If the tax is a

direct one, it shall be apportioned according to the census or enumeration. If it

is a duty, impost, or excise, it shall be uniform throughout the United States.

Together, these classes include every form of tax appropriate to sovereignty.

Cf. Burnet v. Brooks, 288 U.S. 378, 403, 405, 53 S.Ct. 457, 464, 465, 77 L.Ed.

844, 86 A.L.R. 747; Brushaber v. Union Pacific R.R. Co., 240 U.S. 1, 12, 36S.Ct. 236, 60 L.Ed. 493, L.R.A.1917D, 414, Ann.Cas.1917B, 713. Whether the

tax is to be classified as an 'excise' is in truth not of critical importance. If not

that, it is an 'impost' (Pollock v. Farmers' Loan & Trust Co., 158 U.S. 601, 622,

625, 15 S.Ct. 912, 39 L.Ed. 1108; Pacific Insurance Co. v. Soule, 7 Wall. 433,

445, 19 L.Ed. 95), or a 'duty' (Veazie Bank v. Fenno, 8 Wall. 533, 546, 547, 19

L.Ed. 482; Pollock v. Farmers' Loan & Trust Co., 157 U.S. 429, 570, 15 S.Ct.

673, 39 L.Ed. 759; Knowlton v. Moore, 178 U.S. 41, 46, 20 S.Ct. 747, 44 L.Ed.

969). A capitation or other 'direct' tax it certainly is not. 'Although there have been, from time to time, intimations that there might be some tax which was not

a direct tax, nor included under the words 'duties, imposts, and excises,' such a

tax, for more than 100 years of national existence, has as yet remained


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undiscovered, notwithstanding the stress of particular circumstances has invited

thorough investigation into sources of revenue.' Pollock v. Farmers' Loan &

Trust Co., 157 U.S. 429, 557, 15 S.Ct. 673, 680, 39 L.Ed. 759. There is no

departure from that thought in later cases, but rather a new emphasis of it. Thus,

in Thomas v. United States, 192 U.S. 363, 370, 24 S.Ct. 305, 306, 48 L.Ed.

481, it was said of the words 'duties, imposts, and excises' that 'they were used

comprehensively to cover customs and excise duties imposed on importation,consumption, manufacture, and sale of certain commodities, privileges,

particular business transactions, vocations, occupations, and the like.' At times

taxpayers have contended that the Congress is without power to lay an excise

on the enjoyment of a privilege created by state law. The contention has been

put aside as baseless. Congress may tax the transmission of property by

inheritance or will, though the states and not Congress have created the

privilege of succession. Knowlton v. Moore, supra, 178 U.S. 41, at page 58, 20

S.Ct. 747, 44 L.Ed. 969. Congress may tax the enjoyment of a corporatefranchise, though a state and not Congress has brought the franchise into being.

Flint v. Stone Tracy Co., 220 U.S. 107, 108, 155, 31 S.Ct. 342, 55 L.Ed. 389,

Ann.Cas.1912B, 1312. The statute books of the states are strewn with

illustrations of taxes laid on occupations pursued of common right.7 We find no

basis for a holding that the power in that regard which belongs by accepted

practice to the Legislatures of the states, has been denied by the Constitution to

the Congress of the nation.

13 2. The tax being an excise, its imposition must conform to the canon of

uniformity. There has been no departure from this requirement. According to

the settled doctrine, the uniformity exacted is geographical, not intrinsic.

Knowlton v. Moore, supra, 178 U.S. 41, at page 83, 20 S.Ct. 747, 44 L.Ed. 969;

Flint v. Stone Tracy Co., supra, 220 U.S. 107, at page 158, 31 S.Ct. 342, 55

L.Ed. 389, Ann.Cas.1912B, 1312; Billings v. United States, 232 U.S. 261, 282,

34 S.Ct. 421, 58 L.Ed. 596; Stellwagen v. Clum, 245 U.S. 605, 613, 38 S.Ct.

215, 62 L.Ed. 507; LaBelle Iron Works v. United States, 256 U.S. 377, 392, 41S.Ct. 528, 532, 65 L.Ed. 998; Poe v. Seaborn, 282 U.S. 101, 117, 51 S.Ct. 58,

61, 75 L.Ed. 239; Wright v. Vinton Branch of Mountain Trust Bank (March 29,

1937) 300 U.S. 440, 57 S.Ct. 556, 81 L.Ed. 736. 'The rule of liability shall be

alike in all parts of the United States.' Florida v. Mellon, 273 U.S. 12, 17, 47

S.Ct. 265, 266, 71 L.Ed. 511.

14 Second: The excise is not invalid under the provisions of the Fifth Amendment

by force of its exemptions.

15 The statute does not apply, as we have seen, to employers of less then eight. It

does not apply to agricultural labor, or domestic service in a private home or to


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some other classes of less importance. Petitioner contends that the effect of

these restrictions is an arbitrary discrimination vitiating the tax.

16 The Fifth Amendment unlike the Fourteenth has no equal protection clause.

LaBelle Iron Works v. United States, supra; Brushaber v. Union Pacific R.R.

Co., supra, 240 U.S. 1, at page 24, 36 S.Ct. 236, 60 L.Ed. 493, L.R.A.1917D,

414, Ann.Cas.1917B, 713. But even the states, though subject to such a clause,are not confined to a formula of rigid uniformity in framing measures of

taxation. Swiss Oil Corporation v. Shanks, 273 U.S. 407, 413, 47 S.Ct. 393,

395, 71 L.Ed. 709. They may tax some kinds of property at one rate, and others

at another, and exempt others altogether. Bell's Gap R.R. Co. v. Pennsylvania,

134 U.S. 232, 10 S.Ct. 533, 33 L.Ed. 892; Stebbins v. Riley, 268 U.S. 137, 142,

45 S.Ct. 424, 426, 69 L.Ed. 884, 44 A.L.R. 1454; Ohio Oil Co. v. Conway, 281

U.S. 146, 150, 50 S.Ct. 310, 74 L.Ed. 775. They may lay an excise on the

operations of a particular kind of business, and exempt some other kind of business closely akin thereto. Quong Wing v. Kirkendall, 223 U.S. 59, 62, 32

S.Ct. 192, 56 L.Ed. 350; American Sugar Refining Co. v. Louisiana, 179 U.S.

89, 94, 21 S.Ct. 43, 45 L.Ed. 102; Armour Packing Co. v. Lacy, 200 U.S. 226,

235, 26 S.Ct. 232, 50 L.Ed. 451; Brown-Forman Co. v. Kentucky, 217 U.S.

563, 573, 30 S.Ct. 578, 54 L.Ed. 883; Heisler v. Thomas Colliery Co., 260 U.S.

245, 255, 43 S.Ct. 83, 84, 67 L.Ed. 237; State Board of Tax Com'rs v. Jackson,

283 U.S. 527, 537, 538, 51 S.Ct. 540, 543, 75 L.Ed. 1248, 73 A.L.R. 1464, 75

A.L.R. 1536. If this latitude of judgment is lawful for the states, it is lawful, afortiori, in legislation by the Congress, which is subject to restraints less narrow

and confining. Quong Wing v. Kirkendall, supra.

17 The classifications and exemptions directed by the statute now in controversy

have support in considerations of policy and practical convenience that cannot

be condemned as arbitrary. The classifications and exemptions would therefore

be upheld if they had been adopted by a state and the provisions of the

Fourteenth Amendment were invoked to annul them. This is held in two cases passed upon today in which precisely the same provisions were the subject of

attack, the provisions being contained in the Unemployment Compensation

Law of the state of Alabama (Gen.Acts Ala.1935, p. 950, as amended).

Carmichael v. Southern Coal & Coke Co. (Carmichael v. Gulf States Paper

Corporation), 301 U.S. 495, 57 S.Ct. 868, 81 L.Ed. —-. The opinion rendered

in those cases covers the ground fully. It would be useless to repeat the

argument. The act of Congress is therefore valid, so far at least as its system of

exemptions is concerned, and this though we assume that discrimination, if gross enough, is equivalent to confiscation and subject under the Fifth

Amendment to challenge and annulment.


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18 Third: The excise is not void as involving the coercion of the states in

contravention of the Tenth Amendment or of restrictions implicit in our federal

form of government.

19 The proceeds of the excise when collected are paid into the Treasury at

Washington, and thereafter are subject to appropriation like public moneysgenerally. Cincinnati Soap Co. v. United States (May 3, 1937) 301 U.S. 308, 57

S.Ct. 764, 81 L.Ed. -. No presumption can be indulged that they will be

misapplied or wasted.8 Even if they were collected in the hope or expectation

that some other and collateral good would be furthered as an incident, that

without more would not make the act invalid. Sonzinsky v. United States

(March 29, 1937) 300 U.S. 506, 57 S.Ct. 554, 555, 81 L.Ed. 772. This indeed is

hardly questioned. The case for the petitioner is built on the contention that

here an ulterior aim is wrought into the very structure of the act, and what is

even more important that the aim is not only ulterior, but essentially unlawful.

In particular, the 90 per cent. credit is relied upon as supporting that conclusion.

But before the statute succumbs to an assault upon these lines, two propositions

must be made out by the assailant. Cincinnati Soap Co. v. United States, supra.

There must be a showing in the first place that separated from the credit the

revenue provisions are incapable of standing by themselves. There must be a

showing in the second place that the tax and the credit in combination are

weapons of coercion, destroying or impairing the autonomy of the states. The

truth of each proposition being essential to the success of the assault, we passfor convenience to a consideration of the second, without pausing to inquire

whether there has been a demonstration of the first.

20 To draw the line intelligently between duress and inducement, there is need to

remind ourselves of facts as to the problem of unemployment that are now

matters of common knowledge. West Coast Hotel Co. v. Parrish (March 29,

1937) 300 U.S. 379, 57 S.Ct. 578, 81 L.Ed. 703. The relevant statistics are

gathered in the brief of counsel for the government. Of the many available

figures a few only will be mentioned. During the years 1929 to 1936, when the

country was passing through a cyclical depression, the number of the

unemployed mounted to unprecedented heights. Often the average was more

than 10 million; at times a peak was attained of 16 million or more. Disaster to

the breadwinner meant disaster to dependents. Accordingly the roll of the

unemployed, itself formidable enough, was only a partial roll of the destitute or

needy. The fact developed quickly that the states were unable to give the

requisite relief. The problem had become national in area and dimensions.There was need of help from the nation if the people were not to starve. It is too

late today for the argument to be heard with tolerance that in a crisis so extreme

the use of the moneys of the nation to relieve the unemployed and their


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dependents is a use for any purpose narrower than the promotion of the general

welfare. Cf. United States v. Butler, 297 U.S. 1, 65, 66, 56 S.Ct. 312, 319, 80

L.Ed. 477, 102 A.L.R. 914; Helvering v. Davis, 301 U.S. 619, 672, 57 S.Ct.

904, 81 L.Ed. —-, decided herewith. The nation responded to the call of the

distressed. Between January 1, 1933, and July 1, 1936, the states (according to

statistics submitted by the government) incurred obligations of $689,291,802

for emergency relief; local subdivisions an additional $775,675,366. In thesame period the obligations for emergency relief incurred by the national

government were $2,929,307,125, or twice the obligations of states and local

agencies combined. According to the President's budget message for the fiscal

year 1938, the national government expended for public works and

unemployment relief for the three fiscal years 1934, 1935, and 1936, the

stupendous total of $8,681,000,000. The parens patriae has many reasons—

fiscal and economic as well as social and moral—for planning to mitigate

disasters that bring these burdens in their train.

21 In the presence of this urgent need for some remedial expedient, the question is

to be answered whether the expedient adopted has overlept the bounds of

power. The assailants of the statute say that its dominant end and aim is to drive

the state Legislatures under the whip of economic pressure into the enactment

of unemployment compensation laws at the bidding of the central government.

Supporters of the statute say that its operation is not constraint, but the creation

of a larger freedom, the states and the nation joining in a co-operative endeavor to avert a common evil. Before Congress acted, unemployment compensation

insurance was still, for the most part, a project and no more. Wisconsin was the

pioneer. Her statute was adopted in 1931. At times bills for such insurance

were introduced elsewhere, but they did not reach the stage of law. In 1935,

four states (California, Massachusetts, New Hampshire, and New York) passed

unemployment laws on the eve of the adoption of the Social Security Act, and

two others did likewise after the federal act and later in the year. The statutes

differed to some extent in type, but were directed to a common end. In 1936,twenty-eight other states fell in line, and eight more the present year. But if

states had been holding back before the passage of the federal law, inaction was

not owing, for the most part, to the lack of sympathetic interest. Many held

back through alarm lest in laying such a toll upon their industries, they would

place themselves in a position of economic disadvantage as compared with

neighbors or competitors. See House Report, No. 615, 74th Congress, 1st

session, p. 8; Senate Report, No. 628, 74th Congress, 1st session, p. 11.9 Two

consequences ensued. One was that the freedom of a state to contribute its fair share to the solution of a national problem was paralyzed by fear. The other

was that in so far as there was failure by the states to contribute relief according

to the measure of their capacity, a disproportionate burden, and a mountainous


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one, was laid upon the resources of the government of the nation.

22The Social Security Act is an attempt to find a method by which all these public

agencies may work together to a common end. Every dollar of the new taxes

will continue in all likelihood to be used and needed by the nation as long as

states are unwilling, whether through timidity or for other motives, to do what

can be done at home. At least the inference is permissible that Congress so believed, though retaining undiminished freedom to spend the money as it

pleased. On the other hand, fulfillment of the home duty will be lightened and

encouraged by crediting the taxpayer upon his account with the Treasury of the

nation to the extent that his contributions under the laws of the locality have

simplified or diminished the problem of relief and the probable demand upon

the resources of the fisc. Duplicated taxes, or burdens that approach them are

recognized hardships that government, state or national, may properly avoid.

Henneford v. Silas Mason Co., Inc., supra; Kidd v. Alabama, 188 U.S. 730,732, 23 S.Ct. 401, 47 L.Ed. 669; Watson v. State Comptroller, 254 U.S. 122,

125, 41 S.Ct. 43, 44, 65 L.Ed. 170. If Congress believed that the general

welfare would better be promoted by relief through local units than by the

system then in vogue, the co-operating localities ought not in all fairness to pay

a second time.

23 Who then is coerced through the operation of this statute? Not the taxpayer. He

pays in fulfillment of the mandate of the local legislature. Not the state. Evennow she does not offer a suggestion that in passing the unemployment law she

was affected by duress. See Carmichael v. Southern Coal & Coke Co.

(Carmichael v. Gulf States Paper Corporation), supra. For all that appears, she

is satisfied with her choice, and would be sorely disappointed if it were now to

be annulled. The difficulty with the petitioner's contention is that it confuses

motive with coercion. 'Every tax is in some measure regulatory. To some extent

it interposes an economic impediment to the activity taxed as compared with

others not taxed.' Sonzinsky v. United States, supra. In like manner everyrebate from a tax when conditioned upon conduct is in some measure a

temptation. But to hold that motive or temptation is equivalent to coercion is to

plunge the law in endless difficulties. The outcome of such a doctrine is the

acceptance of a philosophical determinism by which choice becomes

impossible. Till now the law has been guided by a robust common sense which

assumes the freedom of the will as a working hypothesis in the solution of its

problems. The wisdom of the hypothesis has illustration in this case. Nothing in

the case suggests the exertion of a power akin to undue influence, if we assumethat such a concept can ever be applied with fitness to the relations between

state and nation. Even on that assumption the location of the point at which

pressure turns into compulsion, and ceases to be inducement, would be a


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question of degree, at times, perhaps, of fact. The point had not been reached

when Alabama made her choice. We cannot say that she was acting, not of her

unfettered will, but under the strain of a persuasion equivalent to undue

influence, when she chose to have relief administered under laws of her own

making, by agents of her own selection, instead of under federal laws,

administered by federal officers, with all the ensuing evils, at least to many

minds, of federal patronage and power. There would be a strange irony, indeed,if her choice were now to be annulled on the basis of an assumed duress in the

enactment of a statute which her courts have accepted as a true expression of

her will. Beeland Wholesale Co. v. Kaufman, supra. We think the choice must

stand.

24 In ruling as we do, we leave many questions open. We do not say that a tax is

valid, when imposed by act of Congress, if it is laid upon the condition that a

state may escape its operation through the adoption of a statute unrelated insubject-matter to activities fairly within the scope of national policy and power.

No such question is before us. In the tender of this credit Congress does not

intrude upon fields foreign to its function. The purpose of its intervention, as we

have shown, is to safeguard its own treasury and as an incident to that

protection to place the states upon a footing of equal opportunity. Drains upon

its own resources are to be checked; obstructions to the freedom of the states

are to be leveled. It is one thing to impose a tax dependent upon the conduct of

the taxpayers, or of the state in which they live, where the conduct to bestimulated or discouraged is unrelated to the fiscal need subserved by the tax in

its normal operation, or to any other end legitimately national. The Child Labor

Tax Case, 259 U.S. 20, 42 S.Ct. 449, 66 L.Ed. 817, 21 A.L.R. 1432, and Hill v.

Wallace, 259 U.S. 44, 42 S.Ct. 453, 66 L.Ed. 822, were decided in the belief

that the statutes there condemned were exposed to that reproach. Cf. United

States v. Constantine, 296 U.S. 287, 56 S.Ct. 223, 80 L.Ed. 233. It is quite

another thing to say that a tax will be abated upon the doing of an act that will

satisfy the fiscal need, the tax and the alternative being approximateequivalents. In such circumstances, if in no others, inducement or persuasion

does not go beyond the bounds of power. We do not fix the outermost line.

Enough for present purposes that wherever the line may be, this statute is

within it. Definition more precise must abide the wisdom of the future.

25 Florida v. Mellon, 273 U.S. 12, 47 S.Ct. 265, 71 L.Ed. 511, supplies us with a

precedent, if precedent be needed. What was in controversy there was section

301 of the Revenue Act of 1926 (44 Stat. 69), which imposes a tax upon thetransfer of a decedent's estate, while at the same time permitting a credit, not

exceeding 80 per cent., for 'the amount of any estate, inheritance, legacy, or

succession taxes actually paid to any State or Territory.' Florida challenged that


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provision as unlawful. Florida had no inheritance taxes and alleged that under

its constitution it could not levy any. 273 U.S. 12, 15, 47 S.Ct. 265, 71 L.Ed.

511. Indeed, by abolishing inheritance taxes, it had hoped to induce wealthy

persons to become its citizens. See 67 Cong. Rec., Part 1, pp. 735, 752. It

argued at our bar that 'the Estate Tax provision was not passed for the purpose

of raising federal revenue' (273 U.S. 12, 14, 47 S.Ct. 265, 71 L.Ed. 511), but

rather 'to coerce States into adopting estate or inheritance tax laws' (273 U.S.12, 13, 47 S.Ct. 265, 71 L.Ed. 511). In fact, as a result of the 80 per cent. credit,

material changes of such laws were made in thirty-six states.10 In the face of

that attack we upheld the act as valid. Cf. Massachusetts v. Mellon, 262 U.S.

447, 482, 43 S.Ct. 597, 599, 67 L.Ed. 1078; also Act of August 5, 1861, c. 45,

12 Stat. 292; Act of May 13, 1862, c. 66, 12 Stat. 384.

26 United States v. Butler, supra, is cited by petitioner as a decision to the

contrary. There a tax was imposed on processors of farm products, the proceedsto be paid to farmers who would reduce their acreage and crops under

agreements with the Secretary of Agriculture, the plan of the act being to

increase the prices of certain farm products by decreasing the quantities

produced. The court held (1) that the socalled tax was not a true one (297 U.S.

1, at pages 56, 61, 56 S.Ct. 312, 315, 317, 80 L.Ed. 477, 102 A.L.R. 914), the

proceeds being earmarked for the benefit of farmers complying with the

prescribed conditions, (2) that there was an attempt to regulate production

without the consent of the state in which production was affected, and (3) thatthe payments to farmers were coupled with coercive contracts (297 U.S. 1, at

page 73, 56 S.Ct. 312, 322, 80 L.Ed. 477, 102 A.L.R. 914), unlawful in their

aim and oppressive in their consequences. The decision was by a a divided

court, a minority taking the view that the objections were untenable. None of

them is applicable to the situation here developed.

27 (a) The proceeds of the tax in controversy are not earmarked for a special

group.

28 (b) The unemployment compensation law which is a condition of the credit has

had the approval of the state and could not be a law without it.

29 (c) The condition is not linked to an irrevocable agreement, for the state at its

pleasure may repeal its unemployment law (section 903(a)(6), 42 U.S.C.A. §

1103(a)(6), terminate the credit, and place itself where it was before the credit

was accepted.

30 (d) The condition is not directed to the attainment of an unlawful end, but to an


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end, the relief of unemployment, for which nation and state may lawfully coo

perate.

31 Fourth: The statute does not call for a surrender by the states of powers

essential to their quasi sovereign existence.

32 Argument to the contrary has its source in two sections of the act. One section

(90311) defines the minimum criteria to which a state compensation system is

required to conform if it is to be accepted by the Board as the basis for a credit.

The other section (90412) rounds out the requirement with complementary rights

and duties. Not all the criteria or their incidents are challenged as unlawful. We

will speak of them first generally, and then more specifically in so far as they

are questioned.

33 A credit to taxpayers for payments made to a state under a state unemployment

law will be manifestly futile in the absence of some assurance that the law

leading to the credit is in truth what it professes to be. An unemployment law

framed in such a way that the unemployed who look to it will be deprived of

reasonable protection is one in name and nothing more. What is basic and

essential may be assured by suitable conditions. The terms embodied in these

sections are directed to that end. A wide range of judgment is given to the

several states as to the particular type of statute to be spread upon their books.

For anything to the contrary in the provisions of this act they may use the

pooled unemployment form, which is in effect with variations in Alabama,

California, Michigan, New York, and elsewhere. They may establish a system

of merit ratings applicable at once or to go into effect later on the basis of

subsequent experience. Cf. Sections 909, 910, 42 U.S.C.A. §§ 1109, 1110.

They may provide for employee contributions as in Alabama and California, or

put the entire burden upon the employer as in New York. They may choose a

system of unemployment reserve accounts by which an employer is permitted

after his reserve has accumulated to contribute at a reduced rate or even not atall. This is the system which had its origin in Wisconsin. What they may not

do, if they would earn the credit, is to depart from those standards which in the

judgment of Congress are to be ranked as fundamental. Even if opinion may

differ as to the fundamental quality of one or more of the conditions, the

difference will not avail to vitiate the statute. In determining essentials,

Congress must have the benefit of a fair margin of discretion. One cannot say

with reason that this margin has been exceeded, or that the basic standards have

been determined in any arbitrary fashion. In the event that some particular condition shall be found to be too uncertain to be capable of enforcement, it

may be severed from the others, and what is left will still be valid.


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34 We are to keep in mind steadily that the conditions to be approved by the Board

as the basis for a credit are not provisions of a contract, but terms of a statute,

which may be altered or repealed. Section 903(a)(6). The state does not bind

itself to keep the law in force. It does not even bind itself that the moneys paid

into the federal fund will be kept there indefinitely or for any stated time. On

the contrary, the Secretary of the Treasury will honor a requisition for the

whole or any part of the deposit in the fund whenever one is made by the

appropriate officials. The only consequence of the repeal or excessive

amendment of the statute, or the expenditure of the money, when requisitioned,

for other than compensation uses or administrative expenses, is that approval of

the law will end, and with it the allowance of a credit, upon notice to the state

agency and an opportunity for hearing. Section 903(b, c), 42 U.S.C.A. §

1103(b, c).

35 These basic considerations are in truth a solvent of the problem. Subjected to

their test, the several objections on the score of abdication are found to be

unreal.

36 Thus, the argument is made that by force of an agreement the moneys when

withdrawn must be 'paid through public employment offices in the State or such

other agencies as the Board may approve.' Section 903(a)(1), 42 U.S.C.A. §

1103(a)(1). But in truth there is no agreement as to the method of disbursement.There is only a condition which the state is free at pleasure to disregard or to

fulfill. Moreover, approval is not requisite if public employment offices are

made the disbursing instruments. Approval is to be a check upon resort to 'other

agencies' that may perchance, be irresponsible. A state looking for a credit must

give assurance that her system has been organized upon a base of rationality.

37 There is argument again that the moneys when withdrawn are to be devoted to

specific uses, the relief of unemployment, and that by agreement for such payment the quasi-sovereign position of the state has been impaired, if not

abandoned. But again there is confusion between promise and condition.

Alabama is still free, without breach of an agreement to change her system over

night. No officer or agency of the national government can force a

compensation law upon her or keep it in existence. No officer or agency of that

government, either by suit or other means, can supervise or control the

application of the payments.

38 Finally and chiefly, abdication is supposed to follow from section 904 of the

statute and the parts of section 903 that are complementary thereto. Section

903(a)(3). By these the Secretary of the Treasury is authorized and directed to


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receive and hold in the Unemployment Trust Fund all moneys deposited therein

by a state agency for a state unemployment fund and to invest in obligations of

the United States such portion of the fund as is not in his judgment required to

meet current withdrawals. We are told that Alabama in consenting to that

deposit has renounced the plenitude of power inherent in her statehood.

39 The same pervasive misconception is in evidence again. All that the state hasdone is to say in effect through the enactment of a statute that her agents shall

be authorized to deposit the unemployment tax receipts in the Treasury at

Washington. Alabama Unemployment Act of September 14, 1935, section 10(i)

(Gen.Acts Ala.1935, p. 961). The statute may be repealed. Section 903(a)(6),

42 U.S.C.A. § 1103(a)(6). The consent may be revoked. The deposits may be

withdrawn. The moment the state commission gives notice to the depositary

that it would like the moneys back, the Treasurer will return them. To find state

destruction there is to find it almost anywhere. With nearly as much reason onemight say that a state abdicates its functions when it places the state moneys on

deposit in a national bank.

40 There are very good reasons of fiscal and governmental policy why a state

should be willing to make the Secretary of the Treasury the custodian of the

fund. His possession of the moneys and his control of investments will be an

assurance of stability and safety in times of stress and strain. A report of the

Ways and Means Committee of the House of Representatives, quoted in themargin, develops the situation clearly.13 Nor is there risk of loss or waste. The

credit of the Treasury is at all times back of the deposit, with the result that the

right of withdrawal will be unaffected by the fate of any intermediate

investments, just as if a checking account in the usual form had been opened in

a bank.

41 The inference of abdication thus dissolves in thinnest air when the deposit is

conceived of as dependent upon a statutory consent, and not upon a contracteffective to create a duty. By this we do not intimate that the conclusion would

be different if a contract were discovered. Even sovereigns may contract

without derogating from their sovereignty. Perry v. United States, 294 U.S.

330, 353, 55 S.Ct. 432, 436, 95 A.L.R. 1335, 79 L.Ed. 912; 1 Oppenheim,

International Law (4th Ed.) §§ 493, 494; Hall, International Law (8th Ed.) §

107; 2 Hyde, International Law, § 489. The states are at liberty, upon obtaining

the consent of Congress, to make agreements with one another. Constitution,

art. 1, § 10, par. 3. Poole v. Fleeger, 11 Pet. 185, 209, 9 L.Ed. 680; RhodeIsland v. Massachusetts, 12 Pet. 657, 725, 9 L.Ed. 1233. We find no room for

doubt that they may do the like with Congress if the essence of their statehood

is maintained without impairment.14 Alabama is seeking and obtaining a credit


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of many millions in favor of her citizens out of the Treasury of the nation.

Nowhere in our scheme of government—in the limitations express or implied of

our Federal Constitution—do we find that she is prohibited from assenting to

conditions that will assure a fair and just requital for benefits received. But we

will not labor the point further. An unreal prohibition directed to an unreal

agreement will not vitiate an act of Congress, and cause it to collapse in ruin.

42 Fifth: Title III of the act is separable from title IX, and its validity is not at

issue.

43 The essential provisions of that title have been stated in the opinion. As already

pointed out, the title does not appropriate a dollar of the public moneys. It does

no more than authorize appropriations to be made in the future for the purpose

of assisting states in the administration of their laws, if Congress shall decide

that appropriations are desirable. The title might be expunged, and title IXwould stand intact. Without a severability clause we should still be led to that

conclusion. The presence of such a clause (section 1103, 42 U.S.C.A. § 1303)

makes the conclusion even clearer. Williams v. Standard Oil Co., 278 U.S. 235,

242, 49 S.Ct. 115, 117, 73 L.Ed. 287, 60 A.L.R. 596; Utah Power & Light Co.

v. Pfost, 286 U.S. 165, 184, 52 S.Ct. 548, 553, 76 L.Ed. 1038; Carter v. Carter

Coal Co., 298 U.S. 238, 312, 56 S.Ct. 855, 873, 80 L.Ed. 1160.

44 The judgment is affirmed.

45 Separate opinion of Mr. Justice McREYNOLDS.

46 That portion of the Social Security legislation here under consideration, I think,

exceeds the power granted to Congress. It unduly interferes with the orderly

government of the state by her own people and otherwise offends the Federal

Constitution.

47 In Texas v. White (1869) 7 Wall. 700, 725, 19 L.Ed. 227, a cause of

momentous importance, this Court, through Chief Justice Chase, declared—

'But the perpetuity and indissolubility of the Union, by no means implies the

loss of distinct and individual existence, or of the right of self-government by

the States. Under the Articles of Confederation each State retained its

sovereignty, freedom, and independence, and every power, jurisdiction, and

right not expressly delegated to the United States. Under the Constitution,though the powers of the States were much restricted, still, all powers not

delegated to the United States, nor prohibited to the States, are reserved to the

States respectively, or to the people. And we have already had occasion to


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remark at this term, that 'the people of each State compose a State, having its

own government, and endowed with all the functions essential to separate and

independent existence,' and that 'without the States in union, there could be no

such political body as the United States.' (Lane County v. Oregon, 7 Wall. 71,

76, 19 L.Ed. 101). Not only, therefore, can there be no loss of separate and

independent autonomy to the States, through their union under the Constitution,

but it may be not unreasonably said that the preservation of the States, and themaintenance of their governments, are as much within the design and care of

the Constitution as the preservation of the Union and the maintenance of the

National Government. The Constitution, in all its provisions, looks to an

indestructible Union, composed of indestructible States.'

48 The doctrine thus announced and often repeated, I had supposed was firmly

established. Apparently the states remained really free to exercise governmental

powers, not delegated or prohibited, without interference by the federalgovernment through threats of punitive measures or offers of seductive favors.

Unfortunately, the decision just announced opens the way for practical

annihilation of this theory; and no cloud of words or ostentatious parade of

irrelevant statistics should be permitted to obscure that fact.

49 The invalidity also the destructive tendency of legislation like the act before us

were forecefully pointed out by President Franklin Pierce in a veto message

sent to the Senate May 3, 1854.1 He was a scholarly lawyer of distinction andenjoyed the advice and counsel of a rarely able Attorney General—Caleb

Cushing of Massachusetts. This message considers with unusual lucidity points

here specially important. I venture to set out pertinent portions of it which must

appeal to all who continue to respect both the letter and spirit of our great

charter.

50 'To the Senate of the United States:

51 'The bill entitled 'An Act making a grant of public lands to the several States for

the benefit of indigent insane persons,' which was presented to me on the 27th

ultimo, has been maturely considered, and is returned to the Senate, the House

in which it originated, with a statement of the objections which have required

me to withhold from it may approval. * * *

52 'If in presenting my objections to this bill I should say more than strictly belongs to the measure or is required for the discharge of my official obligation,

let it be attributed to a sincere desire to justify my act before those whose good

opinion I so highly value and to that earnestness which springs from my


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deliberate conviction that a strict adherence to the terms and purposes of the

federal compact offers the best, if not the only, security for the preservation of

our blessed inheritance of representative liberty.

53 'The bill provides in substance:

54'First. That 10,000,000 acres of land be granted to the several States, to be

apportioned among them in the compound ratio of the geographical area and

representation of said States in the House of Representatives.

55 'Second. That wherever there are public lands in a State subject to sale at the

reguiar price of private entry, the proportion of said 10,000,000 acres falling to

such State shall be selected from such lands within it, and that to the States in

which there are no such public lands land scrip shall be issued to the amount of their distributive shares, respectively, said scrip not to be entered by said States,

but to be sold by them and subject to entry by their assignees: Provided, That

none of it shall be sold at less than $1 per acre, under penalty of forfeiture of

the same to the United States.

56 'Third. That the expenses of the management and superintendence of said lands

and of the moneys received therefrom shall be paid by the States to which they

may belong out of the treasury of said States.

57 'Fourth. That the gross proceeds of the sales of such lands or land scrip so

granted shall be invested by the several States in safe stocks, to constitute a

perpetual fund, the principal of which shall remain forever undiminished, and

the interest to be appropriated to the maintenance of the indigent insane within

the several States.

58 'Fifth. That annual returns of lands or scrip sold shall be made by the States tothe Secretary of the Interior, and the whole grant be subject to certain

conditions and limitations prescribed in the bill, to be assented to by legislative

acts of said States.

59 'This bill therefore proposes that the Federal Government shall make provision

to the amount of the value of 10,000,000 acres of land for an eleemosynary

object within the several States, to be administered by the political authority of

the same; and it presents at the threshold the question whether any such act onthe part of the Federal Government is warranted and sanctioned by the

Constitution, the provisions and principles of which are to be protected and

sustained as a first and paramount duty.


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60 'It can not be questioned that if Congress has power to make provision for the

indigent insane without the limits of this District it has the same power to

provide for the indigent who are not insane, and thus to transfer to the Federal

Government the charge of all the poor in all the States. It has the same power to

provide hospitals and other local establishments for the care and cure of every

species of human infirmity, and thus to assume all that duty of either public

philanthropy or public necessity to the dependent, the orphan, the sick, or theneedy which is now discharged by the States themselves or by corporate

institutions or private endowments existing under the legislation of the States.

The whole field of public beneficence is thrown open to the care and culture of

the Federal Government. Generous impulses no longer encounter the

limitations and control of our imperious fundamental law; for however worthy

may be the present object in itself, it is only one of a class. It is not exclusively

worthy of benevolent regard. Whatever considerations dictate sympathy for this

particular object apply in like manner, if not in the same degree, to idiocy, to physical disease, to extreme destitution. If Congress may and ought to provide

for any one of these objects, it may and ought to provide for them all. And if it

be done in this case, what answer shall be given when Congress shall be called

upon, as it doubtless will be, to pursue a similar course of legislation in the

others? It will obviously be vain to reply that the object is worthy, but that the

application has taken a wrong direction. The power will have been deliberately

assumed, the general obligation will by this act have been acknowledged, and

the question of means and expediency will alone be left for consideration. Thedecision upon the principle in any one case determines it for the whole class.

The question presented, therefore, clearly is upon the constitutionality and

propriety of the Federal Government assuming to enter into a novel and vast

field of legislation, namely, that of providing for the care and support of all

those among the people of the United States who by any form of calamity

become fit objects of public philanthropy.

61 'I readily and, I trust, feelingly acknowledge the duty incumbent on us all asmen and citizens, and as among the highest and holiest of our duties, to provide

for those who, in the mysterious order of Providence, are subject to want and to

disease of body or mind; but I can not find any authority in the Constitution for

making the Federal Government the great almoner of public charity throughout

the United States. To do so would, in my judgment, be contrary to the letter and

spirit of the Constitution and subversive of the whole theory upon which the

Union of these States is founded. And if it were admissible to contemplate the

exercise of this power for any object whatever, I can not avoid the belief that itwould in the end be prejudicial rather than beneficial in the noble offices of

charity to have the charge of them transferred from the States to the Federal

Government. Are we not too prone to forget that the Federal Union is the


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creature of the States, not they of the Federal Union? We were the inhabitants

of colonies distinct in local government one from the other before the

Revolution. By the Revolution the colonies each became an independent State.

They achieved that independence and secured its recognition by the agency of a

consulting body, which, from being an assembly of the ministers of distinct

sovereignties instructed to agree to no form of government which did not leave

the domestic concerns of each State to itself, was appropriately denominated aCongress. When, having tried the experiment of the Confederation, they

resolved to change that for the present Federal Union, and thus to confer on the

Federal Government more ample authority, they scrupulously measured such of

the functions of their cherished sovereignty as they chose to delegate to the

General Government. With this aim and to this end the fathers of the Republic

framed the Constitution, in and by which the independent and sovereign States

united themselves for certain specified objects and purposes, and for those only,

leaving all powers not therein set forth as conferred on one or another of thethree great departments—the legislative, the executive, and the judicial—

indubitably with the States. And when the people of the several States had in

their State conventions, and thus alone, given effect and force to the

Constitution, not content that any doubt should in future arise as to the scope

and character of this act, they ingrafted thereon the explicit declaration that 'the

powers not delegated to the United States by the Constitution nor prohibited by

it to the States are reserved to the States respectively or to the people.'

62 'Can it be controverted that the great mass of the business of Government—that

involved in the social relations, the internal arrangements of the body politic,

the mental and moral culture of men, the development of local resources of

wealth, the punishment of crimes in general, the preservation of order, the

relief of the needy or otherwise unfortunate members of society—did in

practice remain with the States; that none of these objects of local concern are

by the Constitution expressly or impliedly prohibited to the States, and that

none of them are by any express language of the Constitution transferred to theUnited States? Can it be claimed that any of these functions of local

administration and legislation are vested in the Federal Government by any

implication? I have never found anything in the Constitution which is

susceptible of such a construction. No one of the enumerated powers touches

the subject or has even a remote analogy to it. The powers conferred upon the

United States have reference to federal relations, or to the means of

accomplishing or executing things of federal relation. So also of the same

character are the powers taken away from the States by enumeration. In either case the powers granted and the powers restricted were so granted or so

restricted only where it was requisite for the maintenance of peace and harmony

between the States or for the purpose of protecting their common interests and


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defending their common sovereignty against aggression from abroad or

insurrection at home.

63 'I shall not discuss at length the question of power sometimes claimed for the

General Government under the clause of the eighth section of the Constitution,

which gives Congress the power 'to lay and collect taxes, duties, imposts, and

excises, to pay debts and provide for the common defense and general welfareof the United States,' because if it has not already been settled upon sound

reason and authority it never will be. I take the received and just construction of

that article, as if written to lay and collect taxes, duties, imposts, and excises in

order to pay the debts and in order to provide for the common defense and

general welfare. It is not a substantive general power to provide for the welfare

of the United States, but is a limitation on the grant of power to raise money by

taxes, duties, and imposts. If it were otherwise, all the rest of the Constitution,

consisting of carefully enumerated and cautiously guarded grants of specific powers, would have been useless, if not delusive. It would be impossible in that

view to escape from the conclusion that these were inserted only to mislead for

the present, and, instead of enlightening and defining the pathway of the future,

in involve its action in the mazes of doubtful construction. Such a conclusion

the character of the men who framed that sacred instrument will never permit

us to form. Indeed, to suppose it susceptible of any other construction would be

to consign all the rights of the States and of the people of the States to the mere

discretion of Congress, and thus to clothe the Federal Government withauthority to control the sovereign States, by which they would have been

dwarfed into provinces or departments and all sovereignty vested in an absolute

consolidated central power, against which the spirit of liberty has so often and

in so many countries struggled in vain.

64 'In my judgment you can not by tributes to humanity make any adequate

compensation for the wrong you would inflict by removing the sources of

power and political action from those who are to be thereby affected. If the timeshall ever arrive when, for an object appealing, however strongly, to our

sympathies, the dignity of the States shall bow to the dictation of Congress by

conforming their legislation thereto, when the power and majesty and honor of

those who created shall become subordinate to the thing of their creation, I but

feebly utter my apprehensions when I express my firm conviction that we shall

see 'the beginning of the end.'

65 'Fortunately, we are not left in doubt as to the purpose of the Constitution anymore than as to its express lauguage, for although the history of its formation,

as recorded in the Madison Papers, shows that the Federal Government in its

present form emerged from the conflict of opposing influences which have


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continued to divide statesmen from that day to this, yet the rule of clearly

defined powers and of strict construction presided over the actual conclusion

and subsequent adoption of the Constitution. President Madison, in the

Federalist, says:

66 "The powers delegated to the proposed Constitution are few and defined. Those

which are to remain in the State governments are numerous and indefinite. * ** Its (the General Government's) jurisdiction extends to certain enumerated

objects only, and leaves to the several States a residuary and inviolable

sovereignty over all other objects.' 'In the same spirit President Jefferson

invokes 'the support of the State governments in all their rights as the most

competent administrations for our domestic concerns and the surest bulwarks

against anti-republican tendencies;' and President Jackson said that our true

strength and wisdom are not promoted by invasions of the rights and powers of

the several States, but that, on the contrary, they consist 'not in binding theStates more closely to the center, but in leaving each more unobstructed in its

proper orbit.'

67 'The framers of the Constitution, in refusing to confer on the Federal

Government any jurisdiction over these purely local objects, in my judgment

manifested a wise forecast and broad comprehension of the true interests of

these objects themselves. It is clear that public charities Within the States can

be efficiently administered only by their authority. The bill before me concedesthis, for it does not commit the funds it provides to the administration of any

other authority.

68 'I can not but repeat what I have before expressed, that if the several States,

many of which have already laid the foundation of munificent establishments of

local beneficence, and nearly all of which are proceeding to establish them,

shall be led to suppose, as, should this bill become a law, they will be, that

Congress is to make provision for such objects the fountains of charity will bedried up at home and the several States instead of bestowing their own means

on the social wants of their own people may themselves, through the strong

temptation which appeals to states as to individuals, become humble suppliants

for the bounty of the Federal Government, reversing their true relations to this

Union. * * *

69 'I have been unable to discover any distinction on constitutional grounds or

grounds of expediency between an appropriation of $10,000,000 directly from

the money in the Treasury for the object contemplated and the appropriation of

lands presented for my sanction, and yet I can not doubt that if the bill proposed

$10,000,000 from the Treasury of the United States for the support of the


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indigent insane in the several States that the constitutional question involved in

the act would have attracted forcibly the attention of Congress.

70 'I respectfully submit that in a constitutional point of view it is wholly

immaterial whether the appropriation be in money or in land. * * *

71 'To assume that the public lands are applicable to ordinary State objects,

whether of public structures, police, charity, or expenses of State

administration, would be to disregard to the amount of the value of the public

lands all the limitations of the Constitution and confound to that extent all

distinctions between the rights and powers of the States and those of the United

States; for if the public lands may be applied to the support of the poor,

whether sane or insane, if the disposal of them and their proceeds be not subject

to the ordinary limitations of the Constitution, then Congress possesses

unqualified power to provide for expenditures in the States by means of the public lands, even to the degree of defraying the salaries of governors, judges,

and all other expenses of the government and internal administration within the

several States.

72 'The conclusion from the general survey of the whole subject is to my mind

irresistible, and closes the question both of right and of expediency so far as

regards the principle of the appropriation proposed in this bill. Would not the

admission of such power in Congress to dispose of the public domain work the

practical abrogation of some of the most important provisions of the

Constitution? * * * 'The general result at which I have arrived is the necessary

consequence of those views of the relative rights, powers, and duties of the

States and of the Federal Government which I have long entertained and often

expressed and in reference to which my convictions do but increase in force

with time and experience.'

73 No defense is offered for the legislation under review upon the basis of

emergency. The hypothesis is that hereafter it will continuously benefit

unemployed members of a class. Forever, so far as we can see, the states are

expected to function under federal direction concerning an internal matter. By

the sanction of this adventure, the door is open for progressive inauguration of

others of like kind under which it can hardly be expected that the states will

retain genuine independence of action. And without independent states a

Federal Union as contemplated by the Constitution becomes impossible.

74 At the bar counsel asserted that under the present act the tax upon residents of

Alabama during the first year will total $9,000,000. All would remain in the


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Federal Treasury but for the adoption by the state of measures agreeable to the

National Board. If continued, these will bring relief from the payment of

$8,000,000 to the United States.

75 Ordinarily, I must think, a denial that the challenged action of Congress and

what has been done under it amount to coercion and impair freedom of

government by the people of the state would be regarded as contrary to practical experience. Unquestionably our federate plan of government confronts

an enlarged peril.

76 Separate opinion of Mr. Justice SUTHERLAND.

77 With most of what is said in the opinion just handed down, I concur. I agree

that the pay roll tax levied is an excise within the power of Congress; that thedevotion of not more than 90 per cent. of it to the credit of employers in states

which require the payment of a similar tax under so-called unemployment-tax

laws is not an unconstitutional use of the proceeds of the federal tax; that the

provision making the adoption by the state of an unemployment law of a

specified character a condition precedent to the credit of the tax does not render

the law invalid. I agree that the states are not coerced by the federal legislation

into adopting unemployment legislation. The provisions of the federal law may

operate to induce the state to pass an employment law if it regards such action

to be in its interest. But that is not coercion. If the act stopped here, I should

accept the conclusion of the court that the legislation is not unconstitutional.

78 But the question with which I have difficulty is whether the administrative

provisions of the act invade the governmental administrative powers of the

several states reserved by the Tenth Amendment. A state may enter into

contracts; but a state cannot, by contract or statute, surrender the execution, or a

share in the execution, of any of its governmental powers either to a sister state

or to the federal government, any more than the federal government can

surrender the control of any of its governmental powers to a foreign nation. The

power to tax is vital and fundamental, and, in the highest degree, governmental

in character. Without it, the state could not exist. Fundamental also, and no less

important, is the governmental power to expend the moneys realized from

taxation, and exclusively to administer the laws in respect of the character of

the tax and the methods of laying and collecting it and expending the proceeds.

79 The people of the United States, by their Constitution, have affirmed a division

of internal governmental powers between the federal government and the

governments of the several states committing to the first its powers by express


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grant and necessary implication; to the latter, or to the people, by reservation,

'the powers not delegated to the United States by the Constitution, nor

prohibited by it to the States.' The Constitution thus affirms the complete

supremacy and independence of the state within the field of its powers. Carter

v. Carter Coal Co., 298 U.S. 238, 295, 56 S.Ct. 855, 865, 80 L.Ed. 1160. The

federal government has no more authority to invade that field than the state has

to invade the exclusive field of national governmental powers; for, in the oft-repeated words of this court in Texas v. White, 7 Wall. 700, 725, 19 L.Ed. 227,

'the preservation of the States, and the maintenance of their governments, are as

much within the design and care of the Constitution as the preservation of the

Union and the maintenance of the National government.' The necessity of

preserving each from every form of illegitimate intrusion or interference on the

part of the other is so imperative as to require this court, when its judicial power

is properly invoked, to view with a careful and discriminating eye any

legislation challenged as constituting such an intrusion or interference. SeeSouth Carolina v. United States, 199 U.S. 437, 448, 26 S.Ct. 110, 50 L.Ed. 261,

4 Ann.Cas. 737.

80 The precise question, therefore, which we are required to answer by an

application of these principles is whether the congressional act contemplates a

surrender by the state to the federal government, in whole or in part, of any state

governmental power to administer its own unemployment law or the state pay

roll-tax funds which it has collected for the purposes of that law. Anaffirmative answer to this question, I think, must be made.

81 I do not, of course, doubt the power of the state to select and utilize a depository

for the safe-keeping of its funds; but it is quite another thing to agree with the

selected depository that the funds shall be withdrawn for certain stipulated

purposes, and for no other. Nor do I doubt the authority of the federal

government and a state government to co-operate to a common end, provided

each of them is authorized to reach it. But such co-operation must beeffectuated by an exercise of the powers which they severally possess, and not

by an exercise, through invasion or surrender, by one of them of the

governmental power of the other.

82 An illustration of what I regard as permissible co-operation is to be found in

title I of the act now under consideration. By that title, federal appropriations

for oldage assistance are authorized to be made to any state which shall have

adopted a plan for old-age assistance conforming to designated requirements.But the state is not obliged, as a condition of having the federal bounty, to

deposit in the federal treasury funds raised by the state. The state keeps its own

funds and administers its own law in respect of them, without let or hindrance


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of any kind on the part of the federal government; so that we have simply the

familiar case of federal aid upon conditions which the state, without

surrendering any of its powers, may accept or not as it chooses. Massachusetts

v. Mellon, 262 U.S. 447, 480, 482, 483, 43 S.Ct. 597, 598, 599, 67 L.Ed. 1078.

83 But this is not the situation with which we are called upon to deal in the present

case. For here, the state must deposit the proceeds of its taxation in the federaltreasury, upon terms which make the deposit suspiciously like a forced loan to

be repaid only in accordance with restrictions imposed by federal law. Title IX,

§§ 903(a)(3), 904(a), (b), (e), 42 U.S.C.A. §§ 1103(a) (3), 1104(a, b, e). All

moneys withdrawn from this fund must be used exclusively for the payment of

compensation. Section 903(a)(4), 42 U.S.C.A. § 1103(a)(4). And this

compensation is to be paid through public employment offices in the state or

such other agencies as a federal board may approve. Section 903(a)(1), 42

U.S.C.A. § 1103(a)(1). The act, it is true, recognizes section 903(a)(6), 42U.S.C.A. § 1103(a)(6) the power of the Legislature to amend or repeal its

compensation law at any time. But there is nothing in the act, as I read it, which

justifies the conclusion that the state may, in that event, unconditionally

withdraw its funds from the federal treasury. Section 903(b), 42 U.S.C.A. §

1103(b), provides that the board shall certify in each taxable year to the

Secretary of the Treasury each state whose law has been approved. But the

board is forbidden to certify any state which the board finds has so changed its

law that it no longer contains the provisions specified in subsection (a), 'or haswith respect to such taxable year failed to comply substantially with any such

provision.' The federal government, therefore, in the person of its agent, the

board, sits not only as a perpetual overseer, interpreter and censor of state

legislation on the subject, but, as lord paramount, to determine whether the state

is faithfully executing its own law—as though the state were a dependency

under pupilage1 and not to be trusted. The foregoing, taken in connection with

the provisions that money withdrawn can be used only in payment of

compensation and that it must be paid through an agency approved by thefederal board, leaves it, to say the least, highly uncertain whether the right of

the state to withdraw any part of its own funds exists, under the act, otherwise

than upon these various statutory conditions. It is true also that subsection (f) of

section 904, 42 U.S.C.A. § 1104(f), authorizes the Secretary of the Treasury to

pay to any state agency 'such amount as it may duly requisition, not exceeding

the amount standing to the account of such State agency at the time of such

payment.' But it is to be observed that the payment is to be made to the state

agency, and only such amount as that agency may duly requisition. It is hard tofind in this provision any extension of the right of the state to withdraw its

funds except in the manner and for the specific purpose prescribed by the act.


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84 By these various provisions of the act, the federal agencies are authorized to

supervise and hamper the administrative powers of the state to a degree which

not only does not comport with the dignity of a quasi sovereign state—a matter

with which we are not judicially concerned but which deny to it that supremacy

and freedom from external interference in respect of its affairs which the

Constitution contemplates—a matter of very definite judicial concern. I refer to

some, though by no means all, of the cases in point.

85 In the License Cases, 5 How. 504, 588, 12 L.Ed. 256, Mr. Justice McLean said

that the federal government was supreme within the scope of its delegated

powers, and the state governments equally supreme in the exercise of the

powers not delegated nor inhibited to them; that the states exercise their powers

over everything connected with their social and internal condition; and that over

these subjects the federal government had no power. 'They appertain to the

State sovereignty as exclusively as powers exclusively delegated appertain to

the general government.'

86 In Tarble's Case, 13 Wall. 397, 20 L.Ed. 597, Mr. Justice Field, after pointing

out that the general government and the state are separate and distinct

sovereignties, acting separately and independently of each other within their

respective spheres, said that, except in one particular, they stood in the same

independent relation to each other as they would if their authority embraceddistinct territories. The one particular referred to is that of the supremacy of the

authority of the United States in case of conflict between the two.

87 In Farrington v. Tennessee, 95 U.S. 679, 685, 24 L.Ed. 558, this court said, 'Yet

every State has a sphere of action where the authority of the national

government may not intrude. Within that domain the State is as if the union

were not. Such are the checks and balances in our complicated but wise system

of State and national polity.'

88 'The powers exclusively given to the federal government,' it was said in

Worcester v. State of Georgia, 6 Pet. 515, 570, 8 L.Ed. 483, 'are limitations

upon the state authorities. But with the exception of these limitations, the states

are supreme; and their sovereignty can be no more invaded by the action of the

general government, than the action of the state governments can arrest or

obstruct the course of the national power.'

89 The force of what has been said is not broken by an acceptance of the view that

the state is not coerced by the federal law. The effect of the dual distribution of

powers is completely to deny to the states whatever is granted exclusively to


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the nation, and, conversely, to deny to the nation whatever is reserved

exclusively to the states. 'The determination of the Framers Convention and the

ratifying conventions to preserve complete and unimpaired state self-

government in all matters not committed to the general government is one of

the plainest facts which emerges from the history of their deliberations. And

adherence to that determination is incumbent equally upon the federal

government and the states. State powers can neither be appropriated on the onehand nor abdicated on the other.' Carter v. Carter Coal Co., supra, 298 U.S.

238, at page 295, 56 S.Ct. 855, 866, 80 L.Ed. 1160. The purpose of the

Constitution in that regard does not admit of doubt or qualification; and it can

be thwarted no more by voluntary surrender from within than by invasion from

without.

90 Nor may the constitutional objection suggested be overcome by the expectation

of public benefit resulting from the federal participation authorized by the act.Such expectation, if voiced in support of a proposed constitutional enactment,

would be quite proper for the consideration of the legislative body. But, as we

said in the Carter Case, supra, 298 U.S. 238, at page 291, 56 S.Ct. 855, 864, 80

L.Ed. 1160, 'nothing is more certain than that beneficent aims, however great or

well directed, can never serve in lieu of constitutional power.' Moreover,

everything which the act seeks to do for the relief of unemployment might have

been accomplished, as is done by this same act for the relief of the misfortunes

of old age, without obliging the state to surrender, or share with another government, any of its powers.

91 If we are to survive as the United States, the balance between the powers of the

nation and those of the states must be maintained. There is grave danger in

permitting it to dip in either direction, danger—if there were no other—in the

precedent thereby set for further departures from the equipoise. The threat

implicit in the present encroachment upon the administrative functions of the

states is that greater encroachments, and encroachments upon other functions,will follow.

92 For the foregoing reasons, I think the judgment below should be reversed.

93 Mr. Justice VAN DEVANTER joins in this opinion.

94 Mr. Justice BUTLER, dissenting.

95 I think that the objections to the challenged enactment expressed in the separate

opinions of Mr. Justice McREYNOLDS and Mr. Justice SUTHERLAND are


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well taken. I am also of opinion that, in principle and as applied to bring about

and to gain control over state unemployment compensation, the statutory

scheme is repugnant to the Tenth Amendment: 'The powers not delegated to the

United States by the Constitution, nor prohibited by it to the States, are

reserved to the States respectively, or to the people.' The Constitution grants to

the United States no power to pay unemployed persons or to require the states

to enact laws or to raise or disburse money for that purpose. The provisions inquestion, if not amounting to coercion in a legal sense, are manifestly designed

and intended directly to affect state action in the respects specified. And, if

valid as so employed, this 'tax and credit' device may be made effective to

enable federal authorities to induce, if not indeed to compel, state enactments

for any purpose within the realm of state power and generally to control state

administration of state laws.

96 The act creates a Social Security Board and imposes upon it the duty of studying and making recommendations as to legislation and as to administrative

policies concerning unemployment compensation and related subjects. Section

702, 42 U.S.C.A. § 902. It authorizes grants of money by the United States to

States for old age assistance, for administration of unemployment

compensation, for aid to dependent children, for maternal and child welfare and

for public health. Each grant depends upon state compliance with conditions

prescribed by federal authority. The amounts given being within the discretion

of the Congress, it may at any time make available federal money sufficienteffectively to influence state policy, standards and details of administration.

97 The excise laid by section 901 (42 U.S.C.A. § 1101) is limited to specified

employers. It is not imposed to raise money to pay unemployment

compensation. But it is imposed having regard to that subject for, upon

enactment of state laws for that purpose in conformity with federal

requirements specified in the act, each of the employers subject to the federal

tax becomes entitled to credit for the amount he pays into an unemploymentfund under a state law up to 90 per cent. of the federal tax. The amounts yielded

by the remaining 10 per cent., not assigne

Steward MacHine Co. v. Davis, 301 U.S. 548 (1937)

Documents

Transcript of Steward MacHine Co. v. Davis, 301 U.S. 548 (1937)